Unformatted text preview: Question 3 [14 points] A simple mao'necnnomit: system is described below Assuming the system lollows the aggregate expende model, please answer the questior‘s that follow. C = consumption expenditure Co = autonomous consumption expenditure
5 = marginal propensity to oonsu me (M PG)
Yd = disposable lncome NT = net taxes I = tax rate In = investment expenditure G“ = government expenditure X - exports IM mports IMO = autonomous imports rn = marginal propemityto import (MF'M)
Y = real GDPﬁn-me a) Calculate the equilibrium level otincnme. Keep as much precision as possible during your talculatiens. Your ﬁnal arswer should be accurate to the nearest dollar.
Equilibrium = 52,023 b] What is the multiplier for government expenditures? Thai is, increasing govemment expenditures by $1 increases the equilibrium level of lnccme by how much? Keep much preclsion as possible during your calwlalions. Your ﬁnal answer
should be acou rate to at least two decimal places Government Multipller = 2.32 a) Suppose that the potential income for this economy is 53,31 3. What change in government spending would ellrninane this gap and bring the economy back to equllibrl urn? Keep as mud! precision as posslble during your calculations. Your ﬁnal
answer should be accurate to the nearest dollar: Govemmenl Change = $ 55 Marklnn: ...
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- Winter '08
- Macroeconomics, government spending, nearest dollar, consumption expenditure, autonomous consumption expenditure